The new breed of newspaper mogul? On Adelson's purchase of the Review-Journal

The week-long mystery of the identity of the overpaying buyer of Nevada’s biggest and most influential newspaper is over.

But questions about the impact of the sale – and what it could portend both for Nevada and national politics and for the news business – abound.

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On Thursday, first Fortune and then The Wall Street Journal affirmed the growing suspicion that had rippled outward to national media in circles from its birth in the newsroom of the suddenly-acquired Las Vegas Review-Journal and among Nevada’s political gabbers.

Sheldon Adelson, a casino magnate, Republican godfather and free-spending-on-conservative causes billionaire, had indeed bought the paper. Though he had told CNN’s Brian Stelter as late as Tuesday that he had “no personal interest,” Adelson indeed is the major backer of News + Media Capital Group LLC, the recently incorporated Delaware-based corporation that emerged as the buyer of the paper a week ago.

In a cascade of curious events, the paper’s own reporters and editors attempting to report on the sale — and to question the potential editorial impact and brand damage of the “secret” sale — reportedly saw their online-first story significantly changed, and the presses subject to a brief halt, as the paper re-plated with a new version of the suspect story.

According to the Huffington Post, “[Jason] Taylor, the paper's publisher, stopped the presses Thursday night to remove some noteworthy quotes from the paper's story on the sale, as The Huffington Post reported Saturday. For instance, the edited version no longer included Review-Journal editor Michael Hengel asking who is behind the company and what are their expectations. Eric Hartley, who covers Clark County for the paper, tweeted the HuffPost story on Saturday night and wrote, 'This is simply wrong.'"

Now that Adelson has been identified as the money behind the acquisition, the question of why he would pay almost triple the market value of the property comes to the forefront. The secretive sale of the most powerful daily in one of a half-dozen swing states that could decide the 2016 Presidential election raises questions about politically motivated acquirers seeking a new route to election influence — one calculation that doesn’t generally figure into formal valuations.

Nevada is only one of those states in which influential daily newspapers could be bought for prices a tenth of their value a decade ago. We can look at the Colorado and Florida as two other logical markets for potentially politically motivated acquisitions. We’ll explain why below (“Next up: Phil Anschutz and the Koch Brothers?”), but first let’s look at what makes this outlier acquisition so noteworthy.

Adelson pays almost 3X the R-J’s March, 2015 value

New Media Investments, more colloquially known by its earlier name, Gatehouse, sold the Las Vegas Review-Journal only nine months after buying it in March from long-time owner, Stephens Media LLC. New Media Investments has been on a buying spree, since it emerged from a bankruptcy, and has been backed by Fortress Investment Group, a leading hedge fund and private equity firm. The price only nine months ago for eight dailies (and 65 weeklies) in seven states, including the Review-Journal: $102.5 million.

In a New Media press release announcing its buying of the Stephens papers, it noted that “the assets have a combined average daily circulation of approximately 221,000 and 244,000 on Sunday.” The Review-Journal was the largest daily in the group of properties that were bought, which included properties in Arkansas, Iowa, Texas, Oklahoma and North Carolina. According to a report filed with the Alliance for Audited Media, the Review-Journal shows a third-quarter 2015 a daily circulation of 95,000 and Sunday circulation of 117,000.

Consequently, we can extrapolate that the Las Vegas makes up something more than 40% of the acquired papers’ circulation. Las Vegas, the ultimate example of boom-and-bust markets, may be worth a little more than its circulation value, so let’s say the R-J and associated Nevada publications made up 50% of the March deal. That would have meant a value of $52 million or so, or half of the total $102.5 million.

Nine months later, though, the R-J, and its associated holdings, have been bought for $140 million, or almost triple the likely March value. It is worth noting that in 2015, daily newspaper financial performance only worsened across the board, down in mid- to higher-single digits for many mid-sized or larger dailies, such as the R-J. Financially, then, its value may have declined.

In announcing the sale that was completed on Dec. 10, New Media said its gain on the transaction would be “an estimated 69%.” That’s not the number that would astound the ever-struggling newspaper industry: “New Media completed the sale of the Review-Journal and related publications to News + Media Capital Group LLC for $140 million, or 7.0x LTM pro-forma As Adjusted EBITDA.”

We haven’t seen 7X multiples (a price based on annual earnings before interest, taxes, depreciation and amortization) among midsize and larger dailies since before the recession. Today’s average multiple – and the one paid by newly acquisitive companies like New Media Investments – runs 3-4X. That’s what financial buyers have paid in recent years. Strategic buyers may pay a little more, as Jeff Bezos did for the Washington Post, but few have paid the kind of money just disbursed for the financially struggling Review-Journal.

In this transaction, we see how recent newspaper buyers can turn a quick buck. When Stephens first put its papers up for sale, Adelson was among the bidders, reported the Review-Journal on Tuesday. He lost out to New Media Investments. As a company focused on financial – not political – return, New Media had the ability to squeeze the locally focused Adelson, and make a big payday. Michael Schroeder, who spoke for the new owner, told the Review-Journal that his investment group had been trying to buy the Review-Journal "for six to eight months." In essence, New Media bought and flipped the paper, a fitting mode for a paper serving one of the country’s most volatile, and speculative, real estate markets.

(A current parallel: As the Freedom Communications bankruptcy begins to wind to a conclusion, its current management aims to win ownership in court – and then likely sell at a hefty premium to Tribune Publishing, which badly wants the property to complete its southern California synergy strategy.)

Next up: Phil Anschutz and the Koch Brothers?

It’s telling that as speculation swirled around the identity of the R-J buyer, another prominent politically conservative name popped up: the Koch Brothers. It was just two and a half years ago that the bogeyman of Koch newspaper ownership swept the country. As the then-Tribune Company had talks about selling off its daily newspapers, the Koch interest inspired street and web protests (The Koch Rising – and Uprising). In part because of the protests – which included the picketing of the house of Bruce Karsh, co-chairman of major Tribune investor Oaktree — Tribune decided against selling the papers. Instead, it spun them off into a separate company.

The 2013 notion: the billionaire Kochs saw the potential political value of owning newspapers in eight states, ones that could aid its numerous strategies to elect conservative Republican candidates at all levels.

While the Koch name hasn’t been in buying rumors since 2013, the name of another well-known conservative backer, Philip Anschutz, has. Anschutz is a billionaire whose fortunes have been made on real estate, oil, railroads and entertainment media. In addition, he’s in the news business. His Clarity Media Group owns the Weekly Standard magazine, the Examiner newspaper in Washington D.C. and Examiner.com, a newsy national site that has built a large audience. In addition, he owns the Colorado Springs Gazette, the daily in Colorado’s second biggest city; and The Oklahoman in Oklahoma City.

Anschutz has made known his appetite to buy more of the Colorado press. In fact, as Digital First Media put itself up for sale earlier this year, Anschutz’s interest in adding DFM’s Denver and Boulder properties was clear, if unrequited. Those properties represent the first and fourth largest newspaper markets in the state. Owning them would make Anschutz the dominant owner in the state by far. Political pundits consider Colorado’s nine electoral votes among the most pivotal in a close Presidential election. Nevada, home to Review-Journal, casts six electoral votes, and, too, has become a purple state.

POLITICO counts those two of only seven states as toss-ups, or purple. Florida is a third one, and, of course, one that has been so decisive in recent elections, with its 29 electoral votes. The country’s third largest state provides home to numerous, and all struggling, daily newspapers. Two big ones though, are owned by new Tribune Publishing, itself a company now that has now seen two recent expressions of interest in being acquired. (“Apollo seeks purchase of Tribune Publishing”).

Sheldon Adelson’s new acquisition, apparently driven by his son-in-law, could herald the arrival of new class of politically motivated buyers — or could be a relative one-off. What is inarguably true is that these newspapers are incredibly cheap. Whatever their political clout, they can be bought whole and forever for less than the price of a big run of TV political advertising. Figure Digital First Media’s Colorado properties might go for $100 million more or less. Tribune Publishing’s Orlando and Fort Lauderdale papers would fetch the same or less.

Can newspapers still swing elections?

Is media attention here overwrought and over-reactive?

Maybe. It’s inarguably true that Adelson is a major partisan political donor. He provided $100 million in political funding in 2012, largely aimed at defeating Barack Obama, and another estimated $14 million in 2014 midterm elections. (In 2014, let’s note that he was outspent two-to-one by Michael Bloomberg.)

One troubling data point for those concerned about unbiased coverage: Adelson isn’t a neophyte newspaper owner. In 2007, Adelson founded the free Israel Hayom. In 2014, he purchased Makor Rishon, an Israeli religious paper. Both papers prominently support the government of Bibi Netanyahu, and Adelson is a strong backer of the Israeli government’s current policies. Haaretz, considered by many the most respected Israeli news source, wrote a piece about Adelson last year titled “Sheldon Adelson’s Culture of Hate. If anyone said about Jews what the American Jewish billionaire says about Palestinians, he’d be considered a Jew-hater in the same league as Farrakhan and Ahmadinejad.”

Further, in 2014, Adelson spoke to the Israeli American Council in New York City. One topic: How to affect the U.S. dialogue about Israel by buying the influential New York Times.

“There’s only one way to buy it. Money.” he said, as reported by The Daily Beast. Noting the difficulty of such a purchase, given the Times’ two-class ownership structure, he further said a buyer would have to “pay significantly more than it’s worth.” (Hat tip to the Times). That’s apparently what he’s now done to buy Nevada’s biggest paper.

Then, there are the reported Keystone Kops-like shenanigans in skinnying the paper’s own reporting of the sale. One thing to watch: Seller New Media Investments will continue to manage the paper, apparently under a management contract, much as a hotel property might be sold, but kept under same operational direction.

Its publisher Jason Taylor took on the new job only in June and is a veteran of both Gannett and the Chattanooga Free-Press (at which I profiled his innovative events-business work). Perhaps he can maintain the traditional separation between an already-conservative editorial page and the credibility of the Review-Journal’s daily news reporting.

“Most of the time for the last 30 years, the R-J has served up news straight,” unaffected by its editorial page leanings, says Jon Ralston. Ralston is the state’s go-to, well-respected political analyst, having served a 15-year stint as a reporter and columnist for the paper and until recently host of the statewide nightly politics program on KSNV-TV. “I never felt pressure from above.”

In an age where newspaper print circulation still drops precipitously, could the new owner really sway an election, I asked him. Could it swing three to five points in 2016 Presidential face-off?

“Maybe,” said Ralston, who now publishes a paid political newsletter, Ralston Reports, and is a contributing editor to POLITICO Magazine. “The R-J is the dominant news outlet in the state, no question about it. And you can make it more influential if you wanted to.”

How might Sheldon Adelson do that? He could pull from the playbook of other owners less concerned about short-term profit, investing more heavily in digital product and distribution. Or he could take a page from the old days and just distribute the paper more widely and cheaply.

Ralston is among those amazed that the new owner, especially Adelson, would try to keep the acquisition secret. The general surmise as to why: the man who is weighing whether to throw his substantial support to Marco Rubio or Ted Cruz for the Republican nomination wanted to wait until Tuesday’s Republican debate — held at the Sands Hotel he owns — was over. The nosy press kind of got in the way of that plan. The R-J now will spin its own new tale of noses, faces and spiting into 2016.